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Last edited Mon Jun 3, 2013, 06:32 AM USA/ET - Edit history (1)
A revealing new examination of the top 1 percent in a variety of countries brings into focus how the American government’s tax, union bargaining, inheritance and other rules widen the growing divide between those at the top and everyone else.

Four economists found that such wealthy and technologically advanced countries as Japan, France and Germany have seen growth at the top, but not the chasm of inequality created in recent decades in the U.S. and Britain.

That is significant because it means that new technologies and the ability of top talent to work on a global scale cannot explain the diverging fortunes of the top 1 percent and those below, since the Japanese have access to the same technologies and global markets as Americans. The answer must lie elsewhere.

To us, the fact that high‐income countries with similar technological and productivity developments have gone through different patterns of income inequality at the very top supports the view that institutional and policy differences play a key role in these transformations. Purely technological stories based solely upon supply and demand of skills can hardly explain such diverging patterns.

And at the heart of that ability to make more from work and make investments grow more are lowered tax rates on those at the top. With lower rates, boards of directors are willing to pay more, executives get to keep more and of the money they save, they also get to keep more — all of which would be fine if society as a whole were better off as a result, something the American economic data has shown is not the case.

In short, what the paper shows is this: Inequality is a product of government policy.